The cheapest way of ensuring a successful handover to the next equity owner is to ‘grow’ them from within. This has the advantage that they know the firm, its staff, and clients and the way it works. A formal programme of education and providing them with exposure to the issues that they will experience in owning and managing the firm, will ensure that they are ready to take on the responsibility when the time is right. It may also provide them with the opportunity to realise that taking on the risks of equity ownership is not for them. It is better to train a small number of staff to be potential equity owners and allow some of them to realise that they are not suited to entrepreneurial existence, than not to train them and have nobody ready to take over from you in due course.
All this takes time. There may be a couple of false starts. However, if you don’t prepare some staff for the opportunity, you may be left with the other possibility of hawking your firm around the local competition or to one of the many consolidating firms that are currently acquiring firms cheaply because the owners are left with no choice.
Larger firms obviously have the ability to develop people from post-qualification and take them right through to equity ownership. This will be through a process of giving them supervisory experience, followed by team or department management responsibility. All of this should be alongside training in the necessary skills to manage the firm, such as people management, project management, quality improvement, risk management and personal management and skills training, (e.g. resilience, time management, business development, and so on).
As with the smaller firms, some people will fall by the wayside but those with the commitment to the firm and who demonstrate the requisite ability will be ready to take on the mantle.
Finally, in terms of growing your own successor, we are aware that anecdotally, fewer people these days want to take on the risks of equity ownership. They are not looking for a long-term career with the same firm but want to have a more portfolio-style career or change careers a couple of times in their lives, perhaps with travel breaks in between. So, while there are more people with practising certificates now than ever before, it is not a given that there will be plenty ready to take on the equity that is offered. Part of the training must be an honest explanation of the risks and rewards of equity. Every firm that is honest with its staff about the offer on the table will be more highly regarded than any that hide the downsides while overplaying the upsides.
The other option is to find people from outside. This may be by private conversations with other firms or by asking a headhunter to find someone for you. The former may be cheaper and may provide you with a known entity taking on your business but will not provide the largest pool of potential talent. For example, if you know the partners in another local firm and talk to them, they can only decide if they would be interested; they are unlikely to speak for others within their firm or others outside their firm.
Using a headhunter will be more likely to identify individuals within their firm who are interested in progressing but being held back. They may well be interested in taking on your business. Only a headhunter, who perhaps already has a list of candidates for equity, or knows other firms who would be interested in your business, would be able to identify and approach those candidates for you. They have the great advantage of approaching individuals anonymously, so your retirement intentions remain secret – until a Non-Disclosure Agreement can be signed.
Succession isn’t just about people and process – a PI insurers’ assessment of a law firm’s business is key to continuing financial and risk management health, and crucial to any merger or acquisition discussions. In Part Three we cover the PII implications and the successor practice rules, and other aspects to consider.